Earning More and Spending Less to Pay Down Debt

January 28, 2013

When it comes to paying down debt, people often focus on finding ways to cut spending. Others try to find ways to earn more money. In truth, in trying to payoff debt â€“ especially if itâ€™s a large amount â€“ youâ€™ll almost certainly need to do both.

How to Earn More Money

One of the things that makes earning more money difficult is that usually requires a substantial change in behavior. You will begin doing something new that will take up both time and energy. Fortunately there are different ways to go about this, and you can find the best ways that work in your situation.

1. Get a part-time job.

When it comes to earning more money this probably the most conventional route, and it does have its advantages. Because there are so many possibilities, you can find a job working in a business that really interests you. You can choose to work as many (or as few) hours as youâ€™re comfortable doing. You can also choose between working a steady part-time job, or a series of seasonal jobs.

2. Start a side business.

Many people have skills that could be turned into a business. It could be doing some kind of repair work, tutoring or handling certain computer applications. Review your list of skills â€“ all of your skills â€“ and see what talents you have that may lend themselves to self-employment. Potentially, you could earn more money with a more flexible schedule than you would from a part-time job.

3. Participate in incentive programs at work.

Many companies have incentive programs to encourage employees. It could be an employee referral program, or even a bonus on sales or client referrals. Contact your human resources department and see what your employer has available.

4. Get a better paying job.

This can be the most radical step of all, but sometimes itâ€™s absolutely necessary. If thereâ€™s room and opportunity to increase your salary, but your employer canâ€™t afford the higher pay, you may have to change jobs for more money.

5. Sell some of your stuff.

This is probably the easiest step. You probably have all kinds of stuff sitting in your garage or basement that you could sell for cash. Gather it up, clean it and set a fair price, then plan to sell it either through a garage sale, the local newspaper or on Craigslist.

6. Take in a boarder.

If you have an extra room in your home, and local ordinances permit, taking in a boarder can be a way to earn a steady extra income.

Whatever route you take to earn more money, make sure that the extra cash goes into paying debt otherwise youâ€™ll be defeating the purpose.

How to Spend Less Money

When you are in debt, cutting expenses is an obvious step. And just as with earning extra money, there are various ways to spend less money.

1. Make across-the-board spending cuts.

You can cut your expenses by a fixed percentage across the board. For example, you could decide to cut all of your spending by 10%. If your monthly budget is $4,000, this will mean that youâ€™ll have an extra $400 per month to apply toward your debt.

Of course this may not be as easy as it sounds. It may be easy to cut your entertainment and grocery bills by 10%, but debt payments will remain fixed. You may have to decide to make deeper cuts in your variable expenses to compensate for the cuts that you cannot make in your fixed expenses.

2. Eliminate some expenses.

You can decide to eliminate certain expenses entirely. This can include subscriptions, certain services like cable TV, entertainment categories or a gym membership.

3. Eliminate some activities.

Entertainment will be a rich target here as none of it is absolutely necessary. Just make sure that if you do eliminate an activity, that you have an inexpensive replacement for it. For example, if you decide to give up going to the movies for a year, you may need to replace that with movie rentals or some other activity.

4. Eliminate a financial black hole or two.

Sometimes, after eliminating all the easy stuff in your budget, youâ€™re still left with unmanageable expenses. This could be the result of a high house payment, a large car payment or even a vacation home that you have. If youâ€™re actually finding it difficult to find savings in your budget, youâ€™ll have to consider eliminating or trading down on major possessions. For example, dropping your house payment from $1,800 per month to $1,200 per month will be twice as effective as cutting your grocery bill and your entertainment costs by a combined $300 per month. Sometimes hitting the big stuff is the only way.

5. Substitution of services.

Itâ€™s often said that we have a service economy, which is to say that we pay other people to perform services for us that we mostly donâ€™t feel like doing ourselves. You might be able achieve substantial savings by doing more of these services yourself. For example, if you have a lawn service, consider cutting your own lawn. Instead of getting your hair cut in a shop, consider cutting your own hair. Learn what you can about basic auto repair so that you can perform simple tasks on your car, such as rotating the tires, changing the oil or changing spark plugs.

You could try to pay down debt just by earning more, or by spending less, but understand that you can be twice as effective by doing both. The more money you can put toward your debt, the faster you will get out of debt. That will mean less time will ultimately be spent concentrating on the debt effort.

What suggestions do you have to raise cash to pay down debt? Leave a comment!

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Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.